The liquidation of construction giant, Carillion, could lead to 'potentially catastrophic losses for thousands of SMEs', say the Building Engineering Services Association (BESA) and the electrotechnical and engineering services trade body, ECA.
The two organisations explain: “According to its latest set of accounts, Carillion was holding over £800 m in retentions payments owed to sub-contractors. There is growing alarm that much of this money will be lost, leaving many more firms at risk of financial collapse.”
Peter Aldous, MP for Waveney, and (the two bodies say) ‘a long-standing champion of SMEs in industry’, introduced a draft Bill to Parliament on 9 January, just a week before news emerged of Carillion’s compulsory liquidation, which seeks to amend the 1996 Construction Act to ensure retention money is held in a deposit protection scheme – ‘avoiding just this kind of situation’.
“The Bill was developed precisely with just this kind of nightmare scenario in mind,” said BESA President, Tim Hopkinson. “We are aware of the frantic attempts going on behind the scenes to rescue Carillion’s projects and switch them to other contractors, but unless retention money is protected there is a danger the problem is just being moved to another place, and that SMEs will remain equally vulnerable.”
“Carillion’s move into liquidation places their huge supply chain – which includes many electrical and other specialist contractors – at risk of losing millions of pounds, which will threaten companies and jobs”, said ECA director of Business, Paul Reeve. “While this is a clear and present disaster for construction and wider maintenance, the question will ultimately follow – why did Carillion appear so attractive to clients even as it moved towards collapse?”
BESA and ECA are now calling for the following 'five-point action plan':
• Any SME contractors already working on Carillion projects should be allowed to continue on them, projects and be paid directly.
• The UK Government must actively support the Peter Aldous Bill on retentions and ensure it is allocated enough Parliamentary time to progress.
• Major public sector suppliers should be precluded from winning any further contracts ‘unless they can prove they pay their supply chain promptly’.
• Major corporate public sector suppliers worthy of their own Government account managers, and who rely on SME supply chains for successful delivery, must be made to implement transparent supply chain payment systems, statutory public sector payment requirements, Project Bank Accounts, and no retentions, throughout the supply chain.
• Government ‘must monitor and enforce the public sector 30-day payment supply chain model’.
BESA and the ECA add: “Given that 99% of the industry’s 280,000 businesses are SMEs, we would also ask that the Paul Uppal, Small Business Commissioner, support this plan."
The Aldous Bill, which has attracted widespread cross-party support, highlights the fact that more than £10.5 bn of SME’s potential working capital is locked up in retentions every year, with £700 m was entirely lost to SMEs over the past three years. “Well-run businesses are being starved of vital working capital and put at risk of insolvency through no fault of their own,” added Tim Hopkinson.
Paul Reeve concluded: “The fact that a company which recently worked on prestigious public contracts such as Crossrail and the Olympic Stadium can be in this situation should be a wake-up call to those procuring major public infrastructure work.”
ECA and BESA say they are ‘collaborating on a range of important issues and opportunities affecting the building engineering services sector’. The partnership brings together wo leading trade associations representing the interests of building engineering services contractors, representing some 4,000 businesses, with a combined annual turnover of almost £10 bn. Overall, the building engineering services sector is estimated to account for some 40 per cent of UK construction and maintenance turnover.
